May 16, 2007

Nuance Communications

This was included in a Fool Report; "Three Hidden Gems Ready to Run"

Nuance Communications [Nasdaq: NUAN] is the largest pure-play in voice and speech recognition software. Its main areas of concentration are its legacy imaging business (Visioneer, the precursor to ScanSoft, was spun off from Xerox), network speech, embedded speech, and dictation. It has a royalty/software/service model that matches one of the great growth stories of the 1990s, Qualcomm [Nasdaq: QCOM]. Its workhorse segment, dictation, is a $10 billion business in the U.S. health-care segment alone. Nuance predicts that its dictation segment will continue to grow rapidly, similar to the 70% revenue growth it experienced in the most recent quarter. And imaging, a slow growing but highly profitable business, will account for about $70 million (i.e., more than 20%) of an anticipated revenue range of $315 million to $325 million in 2006.

In 2008, more automobiles, handsets, and computers will carry voice-recognition technology. Large corporations are slowly starting to warm to the idea of adding a voice-recognition component to their customer service. To be sure, the technology saves companies a lot of money. As such, further automation is inevitable. If Nuance continues to experience rapid organic growth, it could reward shareholders with a market cap approaching any one of its component divisions when they were stand-alones and more.

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